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Coffee Subscriptions and Monthly Pants: The ins and outs of recurring billing models

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by Startacus Admin

Wyatt Cavalier of Empty Pocket Traders guest writes for Startacus on the ins and outs of the recurring billing model...Empty Pocket Traders

"The subscription model has become super popular over the last couple of years.  It’s not just magazines any more: you can get just about anything delivered to your door these days.

This model makes a lot of sense for both companies and customers, but there are a few pitfalls to watch out for as well.

Why it’s the best idea ever:

You:

  1. Repeat business: customers sign up to get more of your stuff once a month every month, which means you don’t have to hassle them every time you think they might have run out.

  2. Cash flow: asking customers to sign up for a year’s worth of your stuff means you get lots of cash up front.  You can use this to pre-buy your goods or invest in other things (just make sure the money’s there when it comes time to actually buy and deliver).

  3. Inventory forecasting: Once you sort out your attrition rates (some customers will always cancel no matter how good your product or service), it becomes dead easy to forecast your inventory requirements. This is good for you, because it reduces uncertainty, and it’s good for your suppliers, because you can enter into forward contracts with them.  This helps them invest in their business / community / family. It builds a lot of good will.

  4. You only need to deal with receiving and shipping goods once a month.  Three hours dealing with Royal Mail once every four weeks is much less painful than thirty minutes daily.

Your Customers:

  1. It takes all the hassle and thinking out of things.  They don’t need to worry about ordering a new Brita filter when the ‘nearly done’ light turns red. It just appears.

  2. They’ll usually get a discount for pre-paying.

  3. Everyone likes getting parcels in the mail.  It turns into a monthly treat rather than a chronic chore.

Why it’s not the best thing ever:

You:

  1. It’s difficult to get off the ground. Because it’s still somewhat new, a lot of suppliers aren’t equipped to deal with recurring billing in a very recurring billing modelseffective way.  It took us a month+ to find a developer, bank, payment processing system, and ecommerce platform that would all work together.  We were told several times what we wanted to do couldn’t be done.

  2. The flip side of only dealing with shipping once a month is that you put all your eggs in one basket.  If your merchandise arrives late, you’re not going to hack off just one customer.  They’re all going to wonder where their stuff is.

  3. Just as suppliers haven’t quite caught onto the idea yet, likewise customers.  No one wakes up thinking, ‘I really need a gourmet Fairtrade coffee subscription today’, searches for it, and lands on our site. There’s a big education and trust piece that goes along with it, and most sites (Graze and Netflix are a good examples) offer customers a free month to get them in the door, which can be very expensive.

  4. Logistics becomes your life. Because shipping is such a big part of what you do in a subscription model, it becomes something you focus on obsessively.  A standard small parcel costs £2.60 to ship plus another £0.25 for the box and £0.06 for the label. We sell our small coffee subscription for £6.45 a month. Those are ugly numbers, and you suddenly get real motivated to find interesting and innovative ways to cut costs wherever you can. (hint: it should never be from the product itself!)

Your Customers:

  1. Nasty surprises. No one likes signing up for something and forgetting about it only to see it turn up on his monthly statement or his doorstep.

  2. You can get locked in.  Either by signing up for a year in advance or by being a bit lazy and not cancelling the monthly bill.  It can be the sort of thing that comes up when reviewing your annual bank statement that makes you think ‘£200 for water filters? What was I thinking?’

  3. Things pile up. When I was at uni, I wanted to broaden myself by reading the newspaper, so I subscribed for three months. 30 days later I had a pile of unread newspapers and the prospect of 60 more days’ worth to come. Good intentions got smacked down by reality.

Recurring billing is a great model if you can get it nailed, but it makes more sense for some products than it does for others. Gourmet Fairtrade coffee works really well for a couple reasons: First, most folks know how much coffee they drink and will need, so it’s a relatively simple story to tell. But more importantly, it lets us do a better job of looking after our suppliers and customers by taking away their pain points, and that’s the best model for any business to follow."

Wyatt and his wife, Grace, co-founded Empty Pocket Traders, which brings the world’s best gourmet Fairtrade coffee to its customers doors by subscription once a month every month.

If you love coffee you might also like working your startup from a coffee shop - and this subtle to our previous article 'Working from a Coffee Shop - the ground rules' might come in handy! 


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Published on: 31st July 2013

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